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Technology set to rewrite the laws of manufacturing

The emergence of ‘Industry 4.0’ - essentially, the shift towards more automated, data-driven, ‘smart’ manufacturing - has been accompanied by a wealth of assertions about its transformative potential.

First used in Germany to refer to the increasingly complex automation pursued by companies like Bosch and Siemens, the term is now shorthand for a full-scale industrial revolution set to shake up production to an extent not seen since the rise of steam power in the 19th century. Governments are scrambling to fund Industry 4.0 initiatives, and organisations such as the World Economic Forum predict it could disrupt everything from the way workers are managed to global trade networks ­- mainly for the better.[1]

But beyond the grandiose headlines, how can Industry 4.0 be applied in practice, and what does it actually mean on the factory floor? And what are its potential implications for a place such as Hong Kong, which was a manufacturing powerhouse in the 1960s and 1970s but has grown steadily more services-oriented due to high labour and land costs?

Consultancy EY has devoted significant resources to Industry 4.0 research and implementation, most recently forming an alliance with General Electric (GE) to develop and promote the Industrial Internet of Things (IIoT) - a term that is sometimes seen as interchangeable with Industry 4.0, but which actually focuses more specifically on the use of connected devices in the manufacturing process.

According to Brian Meadows, partner and leader for digital operations at EY Advisory Services, and Aleksander Poniewierski, partner and IoT and operational technology leader at EY’s EMEIA (Europe, the Middle East, India and Africa) Advisory Services Center, IIoT adoption will impact production facilities on multiple fronts.

Realising productive potential

One of the key manufacturing performance indicators is the overall operating equipment effectiveness (OEE) ratio; that is, the actual performance or output of a production line versus its capacity. Despite advances in manufacturing equipment and processes, most manufacturers have an OEE ratio of 45-65%. An OEE ratio above 80% is considered best in class, and depends on having an almost completely transparent supply chain. The IIoT puts this goal within reach by allowing manufacturers to integrate sensors and tracking devices into key parts and products, enhancing visibility and control as these move through assembly to quality control, and eventually to the end consumer.

“Although fault triggers and operating systems dashboards have been around for a long time, digital IIoT operations take the focus to a much more granular level,” Mr Meadows explains. “Embedded sensors and high-tech instrumentation in parts, equipment, processes, products and ultimately all resources - including people - will enable the next wave of tremendous productivity and OEE performance.”

Another major pillar of the IIoT is remote manufacturing. Orders to produce essential parts or prototypes, for example, can be automatically generated and dispatched to a line of networked 3D printers across locations or even borders, enabling production virtually around the clock and ultimately, perhaps even consumers logging custom orders directly with a manufacturing facility.

The third significant application of the IIoT will be in asset management and maintenance. Downtime on the production line due to breakdowns or the need to replace key equipment is one of the biggest challenges to a high OEE ratio. By connecting networked machinery to a central monitoring station, or having a piece of equipment alert management automatically when it’s approaching the end of its life, factories can practice what EY calls “predictive maintenance”; that is, addressing problems before they occur.

The potential benefits may be clear, but IIoT implementations have to be planned carefully. It may not be feasible to deploy connected technologies throughout the organisation. Firms should therefore look closely at their supply chains and “identify areas which are characterized by manual effort, repetitiveness, represent a source for potential waste of time and/or materials … and possess a high monetary impact,” says Mr Poniewierski.

Security must also be a primary consideration, as the proliferation of devices using standard communication protocols increases exposure and vulnerabilities to potential hacking or data theft. “The IIoT environment should be protected from both data attacks and physical tampering, including communication encryption,” Mr Poniewierski notes. “New challenges – such as the impersonation of ‘things’ or ‘denial-of-sleep’ attacks in which a sensor node’s power supply is targeted – should be addressed.”

Also important is achieving the right balance of human and technological capabilities in the factory environment. “There will be more automation of tasks that are repetitive, risky and demand consistency over time … creating a so-called ‘second economy, where autonomous transactions between machines don’t require any human interference,” Mr Poniewierski says.

However, this doesn’t necessarily diminish the role of human workers -- in fact human judgment will play a critical role in deciphering the data generated in the connected factory, and using that information to inform business decisions. “Analyzing collected information with a human lens is where true business advantage lies … to create value from big data, you need to intelligently analyze, review and act on data findings.”

The IIoT is likely to require factories to fill roles not necessarily associated with the sector in the past, such as solution architects, industrial data scientists and network security experts. It is also reshaping the workforce. While in the past manufacturing employees were typically dedicated to a specific piece of equipment or function, the ‘smart plant’ will house ‘free-range’ employees who take on a wider variety of responsibilities. “We see substantial improvement in employee morale, due to the critical focus leaders will be able to have on stability and operational excellence,” says Mr Meadows.

A broader shift

Industry 4.0-enabled advances will not be confined to large manufacturers with huge capital expenditure plans. As most IIoT solutions are cloud computing based and therefore require only limited physical infrastructure, they are typically a lower cost investment than the vast enterprise resource planning (ERP) platforms that drive many large manufacturing operations today. In addition, “smaller companies have the ability to adapt to change faster, which is critical for leveraging the speed of operating advancement that results from effective IIoT strategies,” Mr Meadows notes.

More broadly, by making manufacturing less location-dependent, enhancing productivity and cultivating a new kind of workforce, IIoT has the potential to upend the patterns that have defined manufacturing over the past few decades. “The productivity gains combined with higher-capability workforces will erode the labor cost efficiencies that led to manufacturers moving production into low labour cost countries,” Mr Meadows says.

In addition to wages and real estate prices, destinations will be evaluated on their technological infrastructure, computing or robotics talent and data practices. This holds out the prospect that markets such as Hong Kong may once again be attractive destinations for some types of manufacturing activity. It also means that ‘maturing’ destinations which are increasingly integrating information technology and production - such as China with the Made in China 2025 initiative, or South Korea with its ‘Innovation in Manufacturing’ policy - could undergo a late-stage manufacturing renaissance.

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Gareth was a managing editor for the Economist Intelligence Unit’s thought leadership division in Asia. He manages research projects in the Asia Pacific region with a special focus on financial services and the investment industry. Before joining The EIU, Gareth was a director in the institutional marketing and communications team at BlackRock for Asia, focused on investment commentaries, content and events. Prior to this he performed a similar role for Fidelity in Asia Pacific, editing and producing investment perspectives to support cross-channel marketing efforts. He was previously Head of Corporate Communications for Mirae Asset Global Investments in Hong Kong.

Prior to his time in asset management, Gareth was a financial journalist for over 15 years. He began his career at the Financial Times in London as a companies news editor before moving to Reuters as a senior equities editor, working in London and Hong Kong. He also led financial coverage for Bloomberg in Japan during the financial crisis. He has a Bachelors degree in economics from the University of Manchester and a Masters degree in philosophy from the University of London.

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